Trading Capital for the Day Trader: How Much Is Needed?

Having the appropriate amount of trading capital to work with as a day trader is extremely important. You need to make sure that you have enough capital to handle your open positions. You also need to allow yourself a sufficient amount of money to risk in order to make a decent amount of money. Choosing the proper amount of capital to work with can be difficult to determine. It is especially difficult since everyone is different, and has different needs. Here are a few things to consider about how much trading capital you need as a day trader.

SEC Rules

First, if you are a day trader, you will need to meet the rules that are set forth by the SEC. According to the SEC, you have to have at least $25,000 in your account in order to engage in day trading. If you are not a day trader, you could potentially open your account with only a few dollars. However, if you regularly engage in pattern day trading, you have to have enough money to keep your positions open and to withstand the potentially large price swings that can occur in the market.

Margin Requirements

When you are engaging in day trading, you will also have to make sure that you open a margin account. Trading with margin increases the amount of risk and it requires you to have a certain amount of money in your account at all times. Check with your broker in order to make sure that you keep enough money in your account to satisfy the margin requirements.

Personal Preference

You will also have to look at your personal preference to decide how much money to use for day trading. Some people like to keep only the minimum of $25,000 in their account at all times. Others like to keep $100,000 or more in their account so that they will always have plenty of capital to work with. When you utilize larger amounts of capital, you can also risk bigger amounts on each trade, without risking more than one or two percent of your account. This will allow you to increase the amount of profit that you can make from each trade and increase your profitability overall.

Separate Account

Some people like to keep money in a separate account that is linked to their trading account, instead of keeping all of their trading capital in their actual brokerage account. When you keep money in your brokerage account, you are essentially leaving it open to risk. If a trade goes wrong, it could eat up a large percentage of your account balance quickly. If the money is in another account, you can quickly decide whether to transfer more money into your brokerage accounts to cover the positions or if you want to allow the negative trades to run their course.

For example, if you have $100,000 to invest, you could keep $50,000 in your trading account and keep $50,000 in a bank account that is ready to transfer into your brokerage account at anytime. This will help lower your risk and keep your money safe.

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